In this book we study the evolution of
corporate governance arrangements that governments have adopted for their
state-owned enterprises (SOEs) in the last 20 years. We show that the process
of privatization and liberalization of the 1990s and early 2000s created two
new forms of state capitalism, in which Leviathan acts a majority or minority
investor in publicly-listed corporations. We then argue that governments have
transformed the governance of flagship SOEs in a way that has mitigated many of
the agency and political problems that were pervasive in these firms throughout
the twentieth century. The book describes how this transformation of state
capitalism occurred globally and then performs statistical tests of the implications
of these new forms of state capitalism in Brazil.

When governments act as majority
shareholders in publicly traded firms, we find that they have reduced agency
and political problems commonly associated with SOEs. Large SOEs, we find, tend
to have either pay for performance or other mechanisms to incentivize managers;
they have boards of directors, sometimes with external members; they follow
international accounting standards and report financials often (usually
quarterly); they also have large institutional investors as shareholders, which
are effective in monitoring managers; and these firms are commonly rated by
credit rating agencies. In the Leviathan-as-a-minority-shareholder model, which
is also increasingly common, agency problems associated with state ownership
have been tamed. Through this minority ownership model, governments around the
world keep cash-flow rights in key industries, they play the role of large
shareholders monitoring management, often having a seat on the board, but they
do not run the companies themselves.

The book also emphasizes the fact that
governments use development banks to prop up selected firms, the so-called
“national champions.” For instance, in Brazil the government uses the national
development bank invests in equity and provides subsidized loans to companies.
In the book we use detailed data on loans of Brazil’s National Development
Bank, known as BNDES, to over 200 publicly listed corporations and find that
since 2002 most firms are not using the loans they get from this bank to
increase capital expenditures or for projects that increase profitability.

We do not argue that the new models of
state capitalism have solved all of the agency and political problems of the
old forms of state capitalism. The argument is that while these new models have
partially mitigated agency conflicts, there are still obstacles and political
temptations to intervene in SOEs or in private firms where the state is a
minority shareholder or lender. That is, these new models of state capitalism
are perhaps a second best solution, yet a solution that is the product of the
complex political economy of emerging and developed markets.